Monthly Archives: March 2016

In the financial year to end-February, the average price of homes on which new bonds were approved rose by 6,3% to just over R1m, according to the latest statistics from BetterLife Home Loans, SA’s biggest mortgage originator*.

These figures also show that over the same period, the average approved bond size was R811 000, and that 52% of borrowers in the past 12 months were able to pay a deposit of one-fifth of the purchase price – or more – when applying for their home loans.

“This is a far cry from the days when 100% or no-deposit loans were the norm,” says BetterLife Home Loans CEO Shaun Rademeyer, “and it is very much in line with our on-the-ground experience, which is that SA consumers have become much more informed about their finances in general, and are putting a lot more financial preparation into becoming homeowners than they did a few years ago.

“Many of those coming into the market as homebuyers now have in fact been saving carefully for two to three years to accumulate a sizeable deposit, because they are more aware of the benefits of doing so when it comes to qualifying for a loan, and also keeping monthly bond repayments down in the face of rising interest rates.”

As it is, he says, the monthly household income required to qualify for the average loan has risen less than 1% in the past 12 months, despite the 6,3% in house prices, largely because so many prospective borrowers have been able to put down bigger deposits.

“What is more, greater financial awareness and discipline as regards personal debt management and savings has facilitated sustained demand in the residential property sector over the past 12 months – and in the number of new home loan applications – even though there have been three interest rate increases in that time.

“We find that consumers who have planned well ahead for their home purchases won’t delay in the hope of the tide turning on interest rates or home prices. In addition to saving substantial deposits, they have usually also made provision for interest rate fluctuations by reducing their overall debt burdens, which is reflected in the fact that the percentage of outright declines on home loan applications submitted to the banks has actually dropped by more than 3 percentage points over the past 12 months.”

Meanwhile, Rademeyer says, first-time buyers who have usually been the first to exit the market when the financial going gets tough have been assisted to go ahead with their home purchasing plans over the past year by the fact that home prices in this sector grew by an average of just 2,3%.

“The average deposit required in the first-time buyer sector also fell, from an average 8,4% of the purchase price to 7% of the purchase price, and on top of that the very large majority of those home loans that were approved for 100% of the purchase price went to first-time buyers.”

This bodes well for the future of the market as buyers move up the property ladder, he says, as does the fact that the banks are still keen on new home loan business.

“However, prospective homebuyers need to know that credit criteria are being strictly applied, and that they have a better chance of being approved for a home loan if they apply through a reputable mortgage originator such as BetterLife Home Loans. Our success rate is 75%, as opposed to the general market approval rate of less than 40% at this stage.”

*The BetterLife Home Loans statistics represent 25% of all residential mortgage bonds being registered in the Deeds Office.

When you plan a property transaction, one of the last things on your mind is the return of your title deed after the registration in the deeds office. This can cost a property owner thousands of rands.

Our experience is that the local deeds office is one of the worst performers when it comes to the delivery of the title deeds after registration. This slow/bad service may cost the economy and a property owner as a property owner must now wait months to get a title deed out of the deeds office – as example when the property was sold again, or if a further mortgage bond must be registered.

We also cannot understand why the Deeds Office is so much in arrears, when the rest of the country appears to be must faster in their service deliver, in particular when it comes to the delivery of a title deed.

This problem is compounded by the frustration experienced by conveyancing attorneys, estate agents and members of the public when the deeds office in Cape Town announced late in December 2015 that they will close their offices for almost 3 weeks for a Christmas break – the result that many property transactions, worth millions of rands, could not be registered.

From the Deeds Office

We can advise as follows:

As at end January 2016 our backlog total stood at ±50000.

The Image Scanning section commenced with an action plan on 1 February 2016 whereby a renewed attempt was made to get all the backlog deeds scanned.

During February we scanned 46116 deeds that were then ready for verification on 1 March.

I can report that for the period 1 – 10 March we verified 17000 deeds and delivered 13900 deeds. We want to advise conveyancers that we anticipate that we will be delivering the 46000 deeds within the next 3 – 4 weeks.

We are requesting the cooperation of conveyancers:

To collect deliveries daily as we do not have the space to store deliveries

To deal with requests for expedited deliveries cautiously and only in very urgent matters as the expedited requests places an extra burden on the section. If we stick to our action plan, we project that we should be able to deliver deeds registered up to end December 2015 by end March 2016.

The Rent2buy concept developed and fine-tuned by Meyer de Waal was recently featured in the BusinessDay Home Front publication. Strict lending criteria, as a result of increases in interest rates has led that the Rent2buy concept has proved to a solution for many to get their foot in the door to own their own home. A proud example is one of our latest home owners. He had a judgement against his name a year ago, the judgement was paid up, we secured a Rent2buy transaction for him when no bank wanted to give him a home loan and 9 months later his credit profile improved so well that he was granted a home loan. He took transfer in February 2016 and now a proud home owner. CLICK HERE to read the full BusinessDay article…

Dispute Resolutions Course

Just as Rent2buy is the new “buzz word” to secure your own home – resolving disputes through innovative and structured processes have matured into the solution so long needed.

If you missed out on the first “Dispute Resolution” workshop hosted in March 2016 by the Professional Development Facility of Law, UCT, then do not miss out on the other courses hosted in 2016.

Advocate Jacques Joubert, a long-time associate and a ADR accredited commercial mediator with more than 20 years of experience will be one of the co-presenters.

CAPE TOWN – In this advice column Tshireletso Rakgori from Alexander Forbes answers a question from a reader who wants to know if he should put down a deposit on an investment property he is buying or rather invest the capital elsewhere?

Q: I have R100 000 in my savings account. I’m currently buying an investment property and would like to use the money for deposit to get the monthly payments down. The banks offered me a 0.05% improvement if I make that deposit and the monthly repayments will then match the rental income.

My fiancé thinks I should rather take that money and invest it elsewhere where it can earn higher interest. What would you advise?

Paying a deposit towards a mortgage bond can make a significant difference. A mortgage is a major financial burden and reducing it can have immediate benefits.

Buying a house via a mortgage bond essentially entails making two kinds of payments. The first is to repay the capital amount, which is usually the purchase price of the house, and the second is to repay the interest that the bank charges over the period of the loan. During the first years of the mortgage bond, the largest part of your repayments goes towards paying the interest, making the reduction in the capital amount quite small.

How this works is that the deposit you pay upfront reduces the mortgage bond you owe. Therefore a smaller bond is required, which in turn reduces the amount of interest you pay.

To make the above more clear, consider the following:

Let’s say for example the property you are purchasing is R1 200 000. If you take out a bond with no deposit at a 10.25% interest rate, you will pay R11 779.72 per month over 20 years. At the end of the bond term, you will have paid back R2 827 132.95

On the other hand, if you could put down a R100 000 deposit, the monthly repayments will be R10 798.08, and the total repayment will be R2 591 538.54. If the deposit is added to this, the total still only comes to R2 691 538.54. In other words, you would save R135 594.41.

In paying the deposit you therefore not only get the benefit of having the expected rental income match the loan repayments, but you also get to save on some of the interest that the bank would have charged over the years. The other benefit is that the mortgage will be paying itself essentially from your rental income.

The benefit is therefore immediate and could help you to meet your cash flow needs in the short term. In the long term you would also benefit from the capital growth on the property. Being a primary human need, housing is always in demand and if you have chosen one in a good area, you should see growth in value at least linked to inflation.

Overall, property is a great investment, however if you are going to acquire it through a loan you want to do your best to minimise the loan as well as the term of the loan to save on interest. That way you can enjoy more years of earning rental income that will be coming into your pocket instead of it going towards loan repayments.

Tshireletso Rakgori is a financial planning consultant with Alexander Forbes in Johannesburg.